The Wealth Tax Commission has published its final report and concludes the UK could benefit from a one-off wealth tax on all assets.
The Wealth Tax Commission (WTC) has published its final report in which it concludes that the UK could benefit from introducing a wealth tax. A wealth tax has not been considered in the UK since 1974 but there has been increasing discussion around the possibility, particularly in light of the need to raise additional revenue in view of COVID-19. The WTC has held workshops extensively with other countries and economists as well as other tax professionals to form its view. Discussions around wealth tax are taking place against a backdrop of other recent proposals to significantly reform capital taxes in the UK, notably, the Office of Tax Simplification reviews of both Capital Gains Tax and Inheritance Tax. The WTC has identified that there is general public support for a wealth tax, although, it recognises that is usually when people do not have to pay it themselves.
What type of wealth tax is being proposed?
The Commission suggests the Government may want to consider a one-off tax. The WTC argues that a one-off tax would be less distortive and would be easier and more efficient from both an administrative and a compliance perspective. However, to be economically efficient, the public would need certainty that it will be a one-off.
What assets would the tax apply to?
The WTC proposes that the tax should cover all assets, including private homes and pensions and apply to UK residents and those who have recently been resident. It suggests the tax should have a broad base with a proposal that it might apply to personal wealth above £500,000 per person, or £1 million per couple.
The report proposes that a valuation date should be set at a date prior to any announcement, to reduce the scope for avoidance, but that payment of any tax due might be spread over a number of years to ease liquidity concerns. It is not intended that there would normally be a revaluation where an individual’s wealth falls during that period.
Some trust assets would also be subject to the wealth tax.
What will the tax rate be?
The WTC are very clear that it is not setting rates or thresholds – this is a decision for politicians. However, the report includes illustrative figures for a one-off rate in the region of zero to 15 percent.
By way of illustration, the WTC suggest that a five percent (one percent per annum over five years) one-off rate applied along the lines proposed, has the potential to raise £260 billion.
What about business assets?
There is no proposal for a carve out for business assets. Assets of this kind are likely to be particularly difficult to value and funding any tax charge may also prove difficult, as assets are illiquid and any wealth is invested in the business. Too high a rate of wealth tax focused on business assets has the potential to affect tax revenues elsewhere.
What should I do?
These are not Government proposals and the Government did not commission the report. Nevertheless, the projected additional tax revenue included in the proposal is likely to attract the attention of policymakers. Any decisions about wealth tax are likely to be made as part of an overall review of capital taxes, including a potential increase to capital gains tax and significant reforms to inheritance tax. Please contact Jo Bateson or one of the specialists listed on our Family Office and Private Client web page to understand how a wealth tax might affect you, along with the other potential changes to capital taxes.
For further information please contact :
© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.